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Exam 22: Professional Liability and Accountability

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Question 31

True/False

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Damages payable to a client on a professional's breach of contract do not include any penalties the client had to pay as a result of the breach.

A) True
B) False

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Question 32

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A professional can not be held liable for constructive fraud.

A) True
B) False

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Question 33

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In performing professional services, an accountant is subject to the standard of the ordinarily prudent person.

Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely​

Lou, an attorney, allows a statute of limitations to lapse on a claim by Metal Fabrication Company, a client. Lou​

Under the Sarbanes-Oxley Act, working papers are the property of the client for whom an accountant performed a service.

Doug, an accountant, prepares for Econo Enterprise, Inc., a financial statement that omits a material fact. The statement is included in Econo's registration statement with the Securities and Exchange Commission. Felicia, who relies the statement, and Graham, who does not, each buy Econo stock. Under Section 11 of the Securities Act of 1933, Doug may be liable to​

Penalties for aiding or assisting in the preparation of false tax returns are limited to one penalty per taxpayer per tax year.

Fact Pattern 22-1 Nelson, an accountant, enters into a contract to provide services to Operational Processes, Inc. (OPI) . Nelson does not finish the work within the contract's deadline. This causes OPI to fail to meet certain other deadlines owed to Prime Bank, which results in the firm's payment of penalties to the bank. -Refer to Fact Pattern 22-1.Nelson is​

Under federal law, communications between an accountant and his or her client are privileged.

Delaney is an accountant charged with negligence by Estimation & Valuation Services Inc., a client. Delaney may successfully defend against the claim if he can show that​

Brenda is an attorney whose clients include Capital Finance Company. If Brenda is negligent in her work for Capital, under the Restatement (Third) of Torts, Brenda may be liable to Capital and​

An accountant cannot be held liable for a misstatement or omission of material fact in a registration statement.

Norman is an accountant. Norman's violation of generally accepted accounting principles and generally accepted auditing standards​

Gift Company's liabilities exceed its assets. Gift hires Hill & Dale, an accounting firm, to prepare a balance sheet. Through negligent omissions, the sheet shows a net worth. Invest Bank relies on it to make a loan to Gift. When the firm defaults, the bank files a suit against Hill & Dale. Under the Restatement (Third) of Torts, Hill & Dale is most likely​

An accountant who performs an audit may be liable for failing to detect misconduct if a normal audit would have revealed it.

The competency of professionals' service is never an issue.

In most courts, accountants are subject to liability for negligence only to their clients.

Everett is an accountant whose clients include Finance & Capital, Inc. Under the Ultramares rule, if Everett is negligent in his work for Finance & Capital, he could be liable to Finance & Capital and​

An accountant is liable for an omission in a registration statement to a purchaser of securities whether or not the omission has a causal connection to the purchaser's loss.